Merck KGaA says it expects “significant” increases in profits this year and 2014 but only modest increases in sales after months of cost cutting and an income tax break helped boost the company’s bottom line during the fourth quarter of 2012.
Merck saw its Q4 2012 profits more than double to €271.8 million ($352.7 million) from €132.9 million (about $172.5 million) in the final three months of 2011, even though sales rose only 7.4% to €2.7 billion ($3.5 billion) from Q4 2011. For all of 2012, however, net income slid 6.6% from the previous year, to €566.7 million ($735.5 million), while sales climbed 8.4% year-over-year to €10.7 billion ($13.9 billion).
About half the sales increases reflected more favorable foreign exchange rates, with the bulk coming from organic growth and acquisitions, the company said.
Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) zoomed 16.1% during the final three months of 2012 to €789.8 million ($1.0 billion). Overall revenues, which include royalty income, rose 8% year-over-year during Q4, to €2.8 billion ($3.7 billion), and increased 8.7% to €11.2 billion ($14.5 billion) for all of 2012.
Merck said it benefited from much higher-than-projected savings from an ongoing restructuring called “Fit for 2018.” It yielded €115 million ($149.4 million) in savings this year, compared to the €55 million ($71.4 million) that the company expected.
This year and next, Merck predicted, EBITDA—which does not account for one-time savings—will increase faster than sales as a result of net cost savings realized from Fit for 2018.
“With one-time costs peaking in 2012, this should lead to a significant increase in net income in 2013 and 2014,” Merck said in a statement.
Sales, however, “are expected to grow organically at a moderate pace in both 2013 and 2014. The company assumes neither any major new technology introductions in its chemical businesses nor any major new product launches in the pharmaceutical business in either year.”
Nearly all of Merck’s 2012 restructuring savings—87% or €100 million ($129.9 million)—came from its Specialty Pharmaceuticals division, where a U.S. price increase in Merck’s largest-selling product, the drug Rebif® for relapsing forms of multiple sclerosis, accounted for a 7.5% rise in sales of the product to about €1.9 billion (about $2.5 billion).
Adjusting for one-time items, EBITDA for specialty pharma ballooned 13.8% last year, to almost €1.8 billion ($2.3 billion) reflecting a sales margin of 29.8%. Q4 sales increased 5% over the year-earlier quarter, to €1.5 billion (about $2.0 billion), while full-year 2012 sales jumped 7.8% to nearly €6 billion (about $7.8 billion).
“In 2012, Merck continued successfully down the Road to Tomorrow,” Karl-Ludwig Kley, Chairman of Merck’s Executive Board, said in the statement. “Not only did we make progress with one of the most extensive change programs in the 345-year history of the company, we also succeeded in further expanding our business in a challenging economic environment.”